La crisis laboral: génesis y determinación del

IIPA has consistently stressed the direct relationship between the fight against infringement and the need for liberalized market access to supply legitimate product (both foreign and local) to Chinese consumers. Unfortunately, there are a range of restrictions, affecting most of the copyright industries. Some of these must be eliminated as a result of a successful WTO case brought by the United States against China (as discussed below). All of them stifle the ability of U.S. rights holders to do business effectively in China.

Chinese market access restrictions include ownership and investment restrictions;66 _{a discriminatory and} lengthy censorship system (which further opens the door to illegal content); restrictions on the ability to engage fully

64_{The recording industry also notes the desirability of a workable remuneration system for the public performance or other communication/broadcast of their}

recordings. With the increase in playing of recorded music in commercial premises as a primary form of commercial exploitation of music, public performance, communication to the public and broadcasting income is becoming a major potential source of revenue for record producers.

65_{On Screen Asia, China in Focus, April 1, 2009, at http://www.onscreenasia.com/article-4897-chinainfocus-onscreenasia.html.}

in the development, creation, production, distribution, and promotion of music and sound recordings;67 _{and the} continued inability to fully engage in the import and export, distribution, and marketing online of published materials in China. Furthermore, Chinese law continues to prohibit foreign enterprises and foreign-invested enterprises (FIEs) from participating in publishing activities in China. They also include the maintenance of a quota of 20 foreign films for which revenue sharing of the box office receipts between the producers and the importer and distributor is possible,68 _{the inability to import (except through a Chinese-controlled monopoly) and distribute (except through a} two Chinese-controlled duopoly) films for theatrical release, a screen-time quota for foreign theatrical distribution and foreign satellite and television programming, an onerous master contract imposing terms for foreign film distributors, blackout periods for films, local print requirements, foreign investment restrictions, restrictions on retransmission of foreign TV satellite channels, broadcast quota limitations, and onerous import duties, among many other barriers,69all

of which close off the market for U.S. produced films and programming. An onerous ban on the manufacture, sale and importation of videogame consoles remains a major barrier. Entertainment software companies also continue to face lengthy delays in the censorship approval process, wiping out the very short viable window for legitimate distribution of entertainment software products. IIPA also notes a range of policies that China has developed under the banner of promoting “indigenous innovation” that have the effect of discriminating against foreign software and other technology products or compelling transfers of technology and intellectual property to China in order to access the market. These policies limit market access for software and other IIPA member products and undermine the IP development of U.S. and other foreign copyright industries.

The WTO case decision in 2009 will hopefully help address some issues with respect to access to the Chinese market for U.S. music, movies, and books, but other fundamental issues as to these products, and many issues for other industries (several of which are discussed below), remain unresolved.

WTO Case Implementation Needed Urgently: On December 21, 2009, the WTO Appellate Body issued

its decision on the appeal by China of the WTO Panel’s report on certain Chinese market access barriers to the motion picture, recording and publishing industries.70 _{This landmark WTO case requires China to open up its market} for these industries in significant ways and hopefully begin the process of undoing the vast web of restrictions which hamper these industries not only from doing business in China, but in engaging effectively in the fight against infringement there. Specifically, the Appellate Body affirmed a WTO Panel ruling that requires China to:

 allow U.S. companies to import freely into China (without going through the government monopoly) films for theatrical release, DVDs, sound recordings, and books, newspapers, and periodicals. This is a significant market opening result.

 provide market access to, and not discriminate against, foreign companies wishing to distribute their books and periodicals, electronic publications, audiovisual materials and sound recordings, including through sound recording distribution services and electronic distribution products in China.71

67_{For example, the recording industry notes that the MOC Circular dealing with online music contains a restriction on “exclusive licenses” of online music}

services. Currently, there are very few licensed services in China providing repertoire from non-local record companies. There should not be any problem for MOC to regulate these services and conduct anti-piracy actions against other infringing sites. Record companies should be free to choose their licensees.

68_{The impact of the “quota system” in China on the independent segment of the film and television industry is particularly damaging because most often the}

independent film producers do not have access to legitimate distribution in China. For example, the recent WTO decision on intellectual property rights said that China could not solely extend copyright protection to works that are approved for distribution in China (i.e., pass censorship) as this inherently damages rights holders who cannot access “approved” distribution in China and whose works are simply not protectable under current Chinese Copyright Law. Similarly, the nontransparent censorship process in China and its multiple levels poses a significant market access barrier to the independents. Local distributors have reported the inability to obtain an official notice of denial from the censorship authorities.

69_{See Motion Picture Association of America, Trade Barriers to Exports of U.S. Filmed Entertainment, China, October 2011.}

70_{China – Measures Affecting Trading Rights And Distribution Services For Certain Publications And Audiovisual Entertainment Products, WT/DS363/AB/R,}

December 21, 2009, at http://www.wto.org. The U.S. Government requested consultations in this case on April 10, 2007, supported by the China Copyright Alliance (a coalition consisting of MPA, IFTA, RIAA, IFPI and AAP).

71_{Specifically, China must fix its measures in ways which will: open its market to wholesale, master distribution (exclusive sale) of books and periodicals, as well}

as electronic publications, by foreign-invested companies including U.S. companies; permit sound recording distribution services, including electronic distribution, by Chinese-foreign contractual joint ventures, including majority foreign-owned joint ventures; allow the participation of foreign capital in a contractual joint venture engaged in the distribution of reading materials or audiovisual home entertainment products; ease commercial presence requirements for the distribution of DVDs; and do away with China’s 15-year operating term limitation on foreign joint ventures.

 discard discriminatory commercial hurdles for imported reading materials, sound recordings intended for electronic distribution, and films for theatrical release.72

In ongoing consultations over implementation of the WTO decision, the United States should seek to ascertain what the Chinese Government is doing to address WTO-incompatible restrictions and take other market- opening steps, specifically including:

1) how Chinese laws have been changed to allow U.S. companies to import freely into China (without going through the government monopoly) films for theatrical release, DVDs, sound recordings, and books, newspapers, and periodicals, and in particular, any steps being taken to amend the Foreign Investment Catalogue to eliminate the prohibition on foreign investment in the import of films for theatrical release, DVDs, sound recordings, and books, newspapers, and periodicals;

2) steps being taken to provide a simple process for foreign enterprises to notify and exercise their publication importation rights, and confirm that certain parts of the Regulations on Administration of Publishing (for example, Article 42) do not create new requirements on foreign enterprises to exercise their importation rights as to publications;

3) how Chinese laws provide market access to, and do not discriminate against, foreign companies wishing to engage in wholesale, master distribution (exclusive sale) of books and periodicals, as well as electronic publications, and allow the participation of foreign capital in a contractual joint venture engaged in the distribution of reading materials or audiovisual home entertainment products;

4) how Chinese laws allow foreign-invested enterprises to engage in the distribution of imported reading materials;

5) how Chinese laws ease commercial presence requirements for the distribution of DVDs; and do away with China’s 15-year operating term limitation on foreign joint ventures;

6) how Chinese laws discard discriminatory commercial hurdles for imported reading materials, sound recordings intended for electronic distribution, and films for theatrical release, and in particular, how the laws avoid: improperly and discriminatorily limiting distribution for imported newspapers and periodicals to “subscriptions”; limiting such materials and other reading materials to Chinese wholly state-owned enterprises; and limiting the distributor of such reading materials to a State-owned publication import entity particularly designated by a Government agency; and

7) how the recently-revised GAPP rules on imported subscription publications ease the ability for persons in China to subscribe to imported publications, including those in the so-called “non-limited category,” and how an individual wanting to subscribe to an imported publication may submit a subscription application to the publisher or distributor directly.

It is well past the time for the market access WTO decisions to be meaningfully implemented, in order to provide redress to the publishing, audiovisual, music, and other industries, and open access to the Chinese markets for their goods and services. Specifically, the March 19, 2011 deadline for full implementation has long passed. IIPA views it as critical that the U.S. Government urgently take proactive steps to ensure full Chinese Government implementation of its commitments, as well as ceasing discrimination of foreigners in the distribution of music online

72_{For example, China must not improperly and discriminatorily limit distribution for imported newspapers and periodicals to “subscriptions,” and must not limit}

such materials and other reading materials to Chinese wholly state-owned enterprises, and may not limit the distributor of such reading materials to a State- owned publication import entity particularly designated by a government agency. China may also not prohibit foreign-invested enterprises from engaging in the distribution of imported reading materials.

and lifting the restrictive monopoly/duopoly for foreign theatrical film importation into and distribution in China (both discussed below).

Discriminatory Censorship Practice With Respect to Sound Recordings (and AV Works): For several

years, IIPA has complained that U.S. (and other foreign) right holders in music have to go through a different, and discriminatory, censorship review process from Chinese right holders with respect to online music. While the WTO Panel and Appellate Body, in a technical finding, concluded that they lacked sufficient information to determine whether this discriminatory censorship regime with respect to online music violated China’s GATS commitments, this was not a “green light” for the Chinese Government to continue its discriminatory censorship practices. China’s discriminatory regime is unfair and highly suspect under WTO rules. Promulgation of the September 2009 Circular on Strengthening and Improving Online Music Content Examination only exacerbated and complicated the issue by putting into place a censorship review process premised on an architecture ruled to be in violation of China’s GATS commitments, namely, that only wholly-owned Chinese digital distribution enterprises may apply for censorship approval.73 _{The Circular violates China’s WTO commitments under the General Agreement on Trade in Services} (GATS) to provide nondiscriminatory market access for foreign suppliers of sound recording distribution services; it violates China’s commitments on trade in goods under the General Agreement on Tariffs and Trade 1994 (GATT); and it violates China’s Accession Protocol commitment to authorize trade in goods by any entity or individual. China must revoke or modify the Circular to avoid making the country subject to an immediate challenge at the WTO. A set of newly amended Measures on the Administration of Importation of AV Products (2011), introduced a new definition for the term “publication of audio-video product” to include dissemination via Information Network. As a result, the

Measures impose an additional, duplicative, and possibly confusing layer of censorship on online music.

Import Monopoly and Distribution Duopoly for Films/Master Contract: While the WTO Panel and

Appellate Body concluded that the China Film Group duopoly did not constitute a “measure,” and cited the lack of evidence that a third distributor had been denied upon an application from operating in the Chinese market, the decisions equally make clear that if a de facto duopoly exists as to foreign films only, China would be in violation of its WTO obligations. The decisions confirm that, to be consistent with WTO rules, China must approve legitimate applications for other theatrical film importers and distributors in China, a key step that would significantly open up this market to competition, and additionally, would open up to competition and negotiation the underlying agreements upon which foreign films are now distributed in China. Furthermore, such approval of other importers and distributors of foreign films in China along with the corresponding importation rules and processes should be applied in a transparent, timely, non-discretionary and non-discriminatory manner.

Indigenous Innovation Policy: Over the past several years, China has been rolling out a series of policies

aimed at promoting “indigenous innovation.” The apparent goal of many of these policies is to develop national champions by discriminating against foreign companies and compelling transfers of technology. Of particular concern are policies that condition market access on local ownership or development of a service or product’s intellectual property or aim to compel transfers of foreign intellectual property and research and development to China. A broad array of U.S. and international industry groups have raised serious concerns that these policies will effectively shut them out of the rapidly growing Chinese market and are out of step with international best practices for promoting innovation. IIPA shares these concerns and strongly believes that the best ways for China to further enhance its innovative capacity are to: further open its market to foreign investment; provide incentives to innovate by ensuring full respect for intellectual property rights including patents, copyrights and trademarks; avoid policies which establish preferences based on nationality of the owners of the intellectual property rights; and act forcefully and promptly to prevent misappropriation of such rights. The latest developments include the Chinese Government’s announcement that they would be investing US$1.7 trillion over the next five years in what are being dubbed “Strategic Emerging Industries” (SEIs). This initiative, on top of a Supreme People’s Court Opinion on IP released in mid-December 2011 which seems to instruct lower courts to make decisions that assist domestic “cultural” industries, once again raise the specter of discriminatory policies.

73_{The Circular also contains the discriminatory requirement of having an “exclusive license” for foreign sound recordings. This onerous and discriminatory}

The 2011 JCCT outcomes included a commitment by the Chinese Government to eliminate by December 1, 2011 any catalogues or other measures by provincial and municipal governments and autonomous regions linking innovation policies to government procurement preferences. This follows 2010 JCCT, 2011 Obama-Hu Summit, and May 2011 S&ED statements and commitments by the Chinese government to “delink” innovation policies from government procurement, including a clear commitment in the recent S&ED to “eliminate all of its government procurement indigenous innovation products catalogues.” We are hopeful that these developments will be permanent.

Software Procurement Preferences: The business software industry remains concerned that China’s

efforts to legalize software use in government agencies and SOEs may be accompanied by mandates or preferences favoring the acquisition of Chinese software over non-Chinese software. This is inconsistent both with China’s efforts to join the WTO’s Government Procurement Agreement and with China’s commitment in its WTO working party report that the government “would not influence, directly or indirectly, commercial decisions on the part of state- owned or state-invested enterprises, including the quantity, value or country of origin of any goods purchased or sold . . . .” The Chinese government should, consistent with its WTO and JCCT obligations, refrain from instructing or encouraging government agencies or SOEs to implement preferences for Chinese software in carrying out its legalization efforts, and should communicate this policy to relevant government agencies at the central, provincial and local levels.

Local IP Ownership Requirements for Information Security Products Including Software: The

Business Software Alliance reports that the “Multi-level Protection Scheme on Information System Security” (MLPS) sets major restrictions on procurements of software and other information security products for an overly broad range of information systems the government considers sensitive. Among other requirements, procurements of such products are limited to those with IP rights owned in China. This applies to procurements by the government and increasingly to procurements by SOEs and others in the public sector. IIPA is concerned that this Scheme defines “critical infrastructure” in too broad a way, thus restricting foreign cyber-security products from the Chinese market based on nationality of the owner of the IP.

Delays in Content Review of Entertainment Software Products/Ban on Consoles: The entertainment

software industry continues to face lengthy delays of weeks or sometimes even months in the GAPP censorship approval process, wiping out the already-short window for legitimate distribution of entertainment software products. The Chinese Government also fails to immediately seize infringing copies of titles intended for release while they are still undergoing censorship review, resulting in inadequate protection and enforcement. In addition, an onerous ban on the sale and importation of videogame consoles remains a major barrier. The current ban on the sale and importation of electronic gaming devices (i.e., video game consoles), in effect since a 2000 Opinion on the Special

Administration of Electronic Gaming Operating Venues, stymies the growth of the entertainment software sector in

China and denies Chinese consumers the benefits of these technologies, including use of parental controls. The ban has also been extended to development kits used in the creations and development of video games. The ban impacts not only foreign game publishers, but also domestic Chinese developers, who are unable to obtain such kits given the prohibition on their importation.

Barriers for the Independent Film Industry: The independent film industry continues to experience limited

access to the Chinese marketplace, especially for theatrical distribution since independent product is virtually never accepted for revenue-sharing under the existing 20 foreign film quota system. Nevertheless, even when films are imported and theatrically distributed in China (on a flat-fee distribution basis), both the financial return and the license fees for the underlying films are massively eroded by the lack of qualified theatrical distributors who can adequately